30838403 comparative-analysis-of-mutual-funds

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30838403 comparative-analysis-of-mutual-funds

  1. 1. A REPORT ON“COMPARITIVE ANALYSIS OF MUTUAL FUNDS”WITH SPECIAL REFERENCE TO SBI MUTUAL FUND MRINAL MANISH ENR. NO.:4108078078 2008 – 2010 COMPANY GUIDE: MR. KAPIL MALIK (H.O.D.- RETAIL) A report submitted in partial fulfilment for the requirement of MBF program
  2. 2. ACKNOWL EDGEMENTIn pursuit of an MBA degree, summer internship is a critical component of the entireprocess. ‘SBI FUNDS MANAGEMENT PVT. LTD.’ has given me the opportunity togain invaluable experience under the guidance of Mr. Gaurav Vatsayan (V.P.-Sales,Delhi Region) & Mr. Kapil Mallik (Head- Retail channel). Their continuous supportand valuable in hand experience provided me with the conceptual understanding andpractical approach needed to work efficiently for this project. The entire SBI MutualFund’s staff is praiseworthy.I would like to pay my regards and sincere thanks to my in charge Mr. Sumit MahajanforStimulating suggestions and encouragement helped me in all the time of my internship.Last but not the least; I also would like to thank the entire staff of SBI Mutual Fund andall my friends and colleagues who helped whenever I faced any difficult situation.I hope this report, reflecting my learning in the past fourteen weeks, is as beneficial tothe organization as it had been to me.Again, I sincerely thank all of them.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 2
  3. 3. - MRINAL MANISH ENR. NO.- 4108078078 CERTIFICATEThis is to certify that the project on “Comparative Analysis of Mutual Fundswith special refernce to SBI Mutual Fund ” has been done by Mr. MrinalManish with Reference to SBI Mutual Fund, Ashoka Estate, New Delhi as apart of the requirement of the Management of Business Finance (MBF)summer training program. This study is being submitted for approval to IndianInstitute of Finance. I declare that the form and contents of the above mentioned project areoriginal and have not been submitted in part or full, for any other degree ordiploma of this or any other Organization / Institute/ University. Signature: -------------------- Name: Mrinal Manish Enrollment No. 4108078078 MBF (2008-2010) Indian Institute of FinanceMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 3
  4. 4. PREFACEFinance & its functions are the part of economic activity. Finance is very essentiallyneeded for all types of organizations viz; small, medium, large-scale industries &service sector. Hence the role of finance manager & the subject finance accountinggained maximum importance. Liberalization, globalization & privatization created newchallengers to entrepreneur & corporate in carrying they’re day to day activities. So,“finance is regarded as the life blood of a business organization.”Master of business administrator is professional course which develop a new body ofknowledge & skill set & make as available for those seeking challenging carriers in theof liberalization & globalization.The goal of the Summer Training is to give a corporate exposure to the students as wellas to give them an opportunity to apply theory into the practice. The real businessproblems are drastically different from class-room case solving. Summer Project aims toproviding little insight into working of an organization to a management trainee.Among every stage of knowledge being inculcated in students, practical training in thecorporate world plays a significant role in exhibiting and pruning their capabilities.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 4
  5. 5. The purpose behind writing a report is to put in to works the practicaltraining that is imparted into me that gives a better and a clear understanding of theexperience I got.“COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH SPECIALREFERENCE TO SBI MUTUAL FUND”being a very important aspect of SBI Mutual Fund Pvt. Ltd., I have tried to exploremany areas of the subject in my project report.While preparing this project report I got the knowledge about various aspects regardingfinancial decisions made in organisation like “SBI Mutual Fund Pvt. Ltd.” the businessworld.My project is divided into 5 chapters & they are given as under. 1. Chapter 1 is an introduction of the mutual fund industry and the company. 2. Chapter 2 deals with review of literature. 3. Chapter 3 states the methodology being used in the project. 4. Chapter 4 basically states the Analysis of the Mutual Funds 5. Chapter 5 deals with the use of findings, conclusion. suggestions and limitations.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 5
  6. 6. CONTENTS Chapter Page no. I. INTRODUCTION………………………………………………………… 15-62 1. WHY COMPARATIVE ANALYSIS OF MUTUAL FUNDS?............15 2. INTRODUCTION TO MUTUAL FUNDS…………………………….17 3. INDUSTRY PROFILE…………………………………………………40 4. COMPANY PROFILE………………………………………………....46 5. NEW FUND OFFER (SBI GETS)...................................................61 6. OTHER WORK EXPERIENCE AND LEARNINGS DURING THE PROJECT ....................................................................................................62 II. REVIEW OF LITERATURE…………..………………………………..64- 74 III. RESEARCH METHODOLOGY.......................................................75-119 1. NEED OF THE STUDY…………………………........................78 2. TERMINOLOGY……………………………………………….....79MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 6
  7. 7. 3. DATA COLLECTION METHOD……. …………........................85 4. ANALYSIS OF THE INDIVIDUAL INVESTOR…….………….86 5. MOST POPULAR FUNDS OF SBI MUTUAL FUND................100 6. INVESTMENT BEHAVIOUR……….……………………..........102  FACTOR ANALYSIS...................................................107  DISCRIMINANT ANALYSIS.......................................109 7. MOST POPULAR FUND HOUSE IN TERMS OF HIGHEST INVESTMENT........................................................................119 IV. COMAPARRATIVE ANALYSIS……..………………………….........121- 176 1. INTRODUCTION....................................................................122 • NAV..............................................................122 • BETA.......................................................124 • STANDARD DEVIATION.........................124 • SHARPE RATIO.......................................125 • TREYNOR RATIO....................................125 2. INTER FIRM COMPARISION....................................127 • EQUITY DIVERSIFIED FUNDS................129MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 7
  8. 8. • EQUITY LINKED SAVING SCHEMES.....138 • EQUITY LARGE CAP FUNDS..................147 • EQUITY SMALL AND MID CAP FUNDS.155 • EQUITY THEMATIC FUNDS...................165 V. EXPECTATION OF THE INDUSTRY FROM BUDGET 2009-10....176 SWOT ANALYSIS............................................................................181 CONCLUSIONS………………………………………………………......184 SUGGESTIONS AND RECOMMENDATIONS.……………........186 LIMITATIONS………………………………………………….………...192 GLOSSARY……………………………………………..........................103 REFERENCES..................................................................................205 ANNEXURE......................................................................................207 TABLE INDEXTable Name Page no.1. BOARD OF DIRECTORS OF SBI MUTUAL FUND......................................532. NATIONAL DISTRIBUTORS..........................................................................593. ANALYSIS OF FUNDS ON THE BASIS OF VARIOUS RATIOS................814. ANALYSIS ACCORDING TO SAVINGS FROM INCOME..........................885. DESCRIPTIVE WEIGHTED FACTOR COUNTING METHOD...................105MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 8
  9. 9. 6. FACTOR ANALYSIS.......................................................................................1067. FUNDS RETURN OF EQUITY DIVERSIFIED FUNDS...............................1298. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS....................................1309. PORTFOLIO ANALYSIS OF EQUITY DIVERSIFIED FUNDS....................13310. NAV DETAILS OF EQUITY DIVERSIFIED FUNDS...................................13511. FUNDS RETURN OF ELSS.............................................................................13812. RISK PROFILE OF ELSS.................................................................................14013. PORTFOLIO ANALYSIS OF ELSS.................................................................14214. NAV DETAILS OF ELSS..................................................................................14415. FUNDS RETURN OF EQUITY LARGE CAP.................................................14716. RISK PROFILE OF EQUITY LARGE CAP.....................................................14917. PORTFOLIO ANALYSIS OF EQUITY LARGE CAP.....................................15118. NAV DETAILS OF EQUITY LARGE CAP.....................................................15319. FUNDS RETURN OF SMALL AND MID CAP.............................15620. RISK PROFILE OF SMALL AND MID CAP.................................15821. PORTFOLIO ANALYSIS OF SMALL AND MID CAP.................16022. NAV DETAILS OF SMALL AND MID CAP..................................16223. FUNDS RETURN OF EQUITY THEMATIC..................................16524. RISK PROFILE OF EQUITY THEMATIC .....................................16725. PORTFOLIO ANALYSIS OF EQUITY THEMATIC......................16926. NAV DETAILS OF EQUITY THEMATIC.......................................171MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 9
  10. 10. 27. COMPARISION OF MUTUAL FUNDS AGAINST OTHER INVESTMENTAVENUES................................................................................................173 CHART INDEX Chart name Page no. 1. PRODUCT PORTFOLIO.............................................................57 2. ANALYSIS OF THE PREFERENCES OF THE RESPONDENT.......86 3. ANALYSIS ACCORDING TO AGE...............................................87 4. ANALYSIS ACCORDING TO OCCUPATION................................89 5. ANALYSIS ON THE BASIS OF PURCHASE OF INVESTMENT....93 6. INVESTMENT OBJECTIVES........................................................94 7. RISK PREFERENCES...................................................................94MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 10
  11. 11. 8. PREFERABLE ROUTE TO INVESTING IN MUTUAL FUND........96 9. SATISFACTION LEVEL WITH SBI..............................................100 10. DEMOGRAPHIC FACTORS..........................................................109 11. MOST POPULAR FUND HOUSE..................................................119 12. FUND RETURNS OF EQUITY DIVERSIFIED FUNDS .................129 13. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS......................131 14. PORTFOLI ANALYSIS OF EQUITY DIVERSIFIED FUNDS..........133 15. NAV DETAILS OF EQUITY DIVERSIFIED FUNDS......................135 16. FUND RETURNS OF ELSS...........................................................139 17. RISK PROFILE OF ELSS..............................................................140 18. PORTFOLIO ANALYSIS OF ELSS...............................................143 19. NAV DETAILS OF ELSS..............................................................145 20. FUND RETURNS OF EQUITY LARGE CAP.........................147 21. RISK PROFILE OF EQUITY LARGE CAP...........................149 22. PORTFOLIO ANALYSIS OF LARGE CAP..........................151 23. NAV DETAILS OF LARGE CAP.........................................154 24. FUND RETURNS OF EQUITY SMALL AND MID CAP.......156 25. RISK PROFILE OF EQUITY SMALL AND MID CAP...........158 26. PORTFOLIO ANALYSIS OF EQUITY SMALL AND MID CAP .................................................................................................160MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 11
  12. 12. 27. NAV DETAILS OF EQUITY SMALL AND MID CAP...........162 28. FUND RETURNS OF EQUITY THEMATIC..........................165 29. RISK PROFILE OF EQUITY THEMATIC.............................167 30. PORTFOLIO ANALYSIS OF EQUITY THEMATIC...............169 31. NAV DETAILS OF EQUITY THEMATIC..............................171EXECUTIVE SUMMARYOBJECTIVE:  To know the awareness of mutual funds among people.  To see the interest of people in investing in mutual funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 12
  13. 13.  To know the investment behaviour of investors in mutual fund according to different age group.  To ascertain the percentage of income the investors invest in mutual fund.  To know the different attitudes of people regarding risk, rate of return, period of investment.  To know the investors preferred financial product for investment.SCOPE:There are four divisions in SBI MF for the purpose of marketing and sales. They givespecial attention for the retention of customers i.e. investors, distributors and brokers.Four divisions are:1. National distributors.2. Banking.3. Individual financial advisors.4. FII’s.FII’s are taking care by head office in MUMBAI. I am under section of Nationaldistributors and Individual financial advisors. To maintain relationships with them andmake them aware about the new offerings and sort out their existing problems. My areaof scope is DELHI region. There are around 250 ND’s and IFA’s in this region.METHODOLOGY FOLLOWED:Methodology basically means the selection of the various methods and techniques in theresearch-conducted. The various steps includes: -1. Selection of a representative sample from the general population, which depicts thecharacteristics of the completepopulation.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 13
  14. 14. 2. Application of various tools and techniques to obtain relevantinformation related to a case.3. Collection of relevant data.4. Analysis and interpretation of the data.5. Generation of a final report.RESEARCH DESIGNThere are 34 fund houses currently operating in India of which four have been inexistence for less than three years. Whereas till 2004, hardly a few equity schemes werelaunched each year, that number has grown by 8-10 times now.For the purpose of the research, I have selected 5 fund houses as mentioned under: SBI Mutual Fund Birla Reliance Prudential ICICI Franklin TempletonThe following methodology is adopted for ComparisonStep1: Selection of few well-performing Funds of Big Fund Houses of India.Step2: Collection of data (against various parameters) for comparison of Funds.Step3: Analyses of the parameters and their relevance in comparing the funds.Step4: Comparing and Ranking these funds on the basis of inputs from executives andtherating agencies.Step5: Generation of a project report.DATA COLLECTIONMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 14
  15. 15. The primary data collection was the most important part of the project.This includes collecting the information through field research. For collectinginformation, a personal interview was conducted with the help of questionnaire and therequired information was collected for the respondents.DATA ANALYSISAfter collecting the data, data is to be analyzed. The findings and the analysis have beenmentioned further in the report. 1. INTRODUCTIONWHY COMAPARATIVE ANALYSIS OF MUTUAL FUNDS?MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 15
  16. 16. All over the world, mutual fund is one of the most popular instruments forinvestment. Its popularity with consumer has dramatically increased over the last coupleof years worldwide; the mutual fund has a long and successful history. The popularity ofmutual fund has increased manifold. In developed financial market like United States,mutual has almost overtaken bank deposits and total assets of insurance funds.The mutual fund industry in India is regulated by Association of Mutual Funds in India(AMFI). The mutual fund industry in India is of 493,287 crores approx. SBI MutualFund is India’s largest bank sponsored mutual fund and has an enviable track record injudicious investments and consistent wealth creation.The fund traces its lineage to SBI - India’s largest banking enterprise. The institution hasgrown immensely since its inception and today it is Indias largest bank, patronized byover 80% of the top corporate houses of the country.SBI Mutual Fund is a joint venture between the State Bank of India and SociétéGénérale Asset Management, one of the world’s leading fund managementcompanies that manages over US$ 500 Billion worldwide.In twenty years of operation, the fund has launched 38 schemes and successfullyredeemed fifteen of them. In the process it has rewarded its investors handsomely withconsistently high returns.A total of over 4.6 million investors have reposed their faith in the wealth generationexpertise of the Mutual Fund.Schemes of the Mutual fund have consistently outperformed benchmark indices andhave emerged as the preferred investment for millions of investors and HNI’s.Today, the fund manages over Rs. 28500 crores of assets and has a diverse profile ofinvestors actively parking their investments across 36 active schemes.The fund serves this vast family of investors by reaching out to them through network ofover 130 points of acceptance, 28 investor service centers, 46 investor service desks and56 district organizers.SBI Mutual is the first bank-sponsored fund to launch an offshore fund – ResurgentIndia Opportunities Fund.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 16
  17. 17. Growth through innovation and stable investment policies is the SBI MFcredoState Bank of India was born on 1st July,1955 based on the recommendations of AllIndia Rural Credit Survey Committee(1954) headed by Shri A.D Gorwala, through anAct of Parliament. The main objective of SBI is “Extension of Banking facilities on alarge scale, more particularly in rural and semi-urban areas, and for diverse other publicpurposes and to transfer to it the undertaking of the Imperial Bank of India and providefor other matters connected thereto or incidental thereto.”SBI is the oldest, the largestand the highest profit making bank in India. Its evolution is not only intimatelyinterwoven with the economic development of modern India but also with our nationbuilding process to an extent perhaps unparalleled in the world. Moving like colossuseson the Indian financial turf, it has become a symbol of national pride and economicdevelopment.SBI with its extensive network of over 9000 branches has vast clientele and extendsservice not only on commercial basis but also on the basis of social considerations. TheBank is also on its way to introduce and absorb technology extensively at a rapid speednot only to remain customer-friendly and efficient for existing business but also tomanage new business and services in an increasingly dynamic and global environment.The project entitled “Comparison of Mutual Fund with special reference to SBIMutual Fund” gives me an opportunity to enhance my knowledge of mutual fundsindustry and gives me an insight of business processes of different types of client.INTRODUCTION TO MUTUAL FUNDSMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 17
  18. 18. Mutual fund is a buzz in the market these days. The mutual fund industryis burgeoning, it is completely untapped market. Only 5% of total potential of thisindustry has been grabbed. Hence this industry has a lot of opportunities in it. That’swhy it is so much interactive.As Indian economy is growing at the rate of 8% per annum, we can see its effect in allareas. The Indian stock market and companies have become lucrative for foreigninvestors. More and more fund is pouring in our country. This is increasing liquidity inthe market and hence increasing the money in the hands of people and thus investment.As the future prospects for Indian companies are bright, they have lots of opportunitiesto expand their business worldwide, the investment in Indian companies.A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is invested by the fund manager indifferent types of securities depending upon the objective of the scheme. These couldrange from shares to debentures to money market instruments. The income earnedthrough these investments and the capital appreciations realized by the scheme areshared by its unit holders in proportion to the number of units owned by them (pro rata).Thus a Mutual Fund is the most suitable investment for the common man as it offers anopportunity to invest in a diversified, professionally managed portfolio at a relativelylow cost. Anybody with an investible surplus of as little as a few thousand rupees caninvest in Mutual Funds. Each Mutual Fund scheme has a defined investment objectiveand strategy.A mutual fund is the ideal investment vehicle for today’s complex and modern financialscenario. Markets for equity shares, bonds and other fixed income instruments, realestate, derivatives and other assets have become mature and information driven. Pricechanges in these assets are driven by global events occurring in faraway places. Atypical individual is unlikely to have the knowledge, skills, inclination and time to keeptrack of events, understand their implications and act speedily. An individual also findsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 18
  19. 19. it difficult to keep track of ownership of his assets, investments, brokeragedues and bank transactions etc.A mutual fund is the answer to all these situations. It appoints professionally qualifiedand experienced staff that manages each of these functions on a full time basis. Thelarge pool of money collected in the fund allows it to hire such staff at a very low cost toeach investor. In effect, the mutual fund vehicle exploits economies of scale in all threeareas - research, investments and transaction processing. While the concept ofindividuals coming together to invest money collectively is not new, the mutual fund inits present form is a 20th century phenomenon. In fact, mutual funds gained popularityonly after the Second World War. Globally, there are thousands of firms offering tens ofthousands of mutual funds with different investment objectives. Today, mutual fundscollectively manage almost as much as or more money as compared to banks.A draft offer document is to be prepared at the time of launching the fund. Typically, itpre specifies the investment objectives of the fund, the risk associated, the costsinvolved in the process and the broad rules for entry into and exit from the fund andother areas of operation. In India, as in most countries, these sponsors need approvalfrom a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks attrack records of the sponsor and its financial strength in granting approval to the fundfor commencing operations.A sponsor then hires an asset management company to invest the funds according to theinvestment objective. It also hires another entity to be the custodian of the assets of thefund and perhaps a third one to handle registry work for the unit holders (subscribers) ofthe fund.In the Indian context, the sponsors promote the Asset Management Company also, inwhich it holds a majority stake. In many cases a sponsor can hold a 100% stake in theAsset Management Company (AMC). E.g. Birla Global Finance is the sponsor of theBirla Sun Life Asset Management Company Ltd., which has floated different mutualMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 19
  20. 20. funds schemes and also acts as an asset manager for the funds collectedunder the schemes.Future ScenarioThe asset base will continue to grow at an annual rate of about 30 to 35 % over the nextfew years as investor’s shift their assets from banks and other traditional avenues. Someof the older public and private sector players will either close shop or be taken over.Out of ten public sector players five will sell out, close down or merge with strongerplayers in three to four years. In the private sector this trend has already started with twomergers and one takeover. Here too some of them will down their shutters in the nearfuture to come.But this does not mean there is no room for other players. The market will witness aflurry of new players entering the arena. There will be a large number of offers fromvarious asset management companies in the time to come. Some big names like Fidelity,Principal, and Old Mutual etc. are looking at Indian market seriously. One importantreason for it is that most major players already have presence here and hence these bignames would hardly like to get left behind.The mutual fund industry is awaiting the introduction of derivatives in India as thiswould enable it to hedge its risk and this in turn would be reflected in it’s Net AssetValue (NAV).SEBI is working out the norms for enabling the existing mutual fund schemes to trade inderivatives. Importantly, many market players have called on the Regulator to initiateMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 20
  21. 21. the process immediately, so that the mutual funds can implement thechanges that are required to trade in Derivatives.Market TrendsA lone UTI with just one scheme in 1964 now competes with as many as 400 oddproducts and 34 players in the market. In spite of the stiff competition and losing marketshare, UTI still remains a formidable force to reckon with.Last six years have been the most turbulent as well as exiting ones for the industry. Newplayers have come in, while others have decided to close shop by either selling off ormerging with others. Product innovation is now passé with the game shifting toperformance delivery in fund management as well as service. Those directly associatedwith the fund management industry like distributors, registrars and transfer agents, andeven the regulators have become more mature and responsible.The industry is also having a profound impact on financial markets. While UTI hasalways been a dominant player on the bourses as well as the debt markets, the newgenerations of private funds which have gained substantial mass are now seen flexingtheir muscles. Fund managers, by their selection criteria for stocks have forced corporategovernance on the industry. By rewarding honest and transparent management withhigher valuations, a system of risk-reward has been created where the corporate sector ismore transparent then before.Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCGand technology sector. Funds performances are improving. Funds collection, whichaveraged at less than Rs100bn per annum over five-year period spanning 1993-98doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceededRs300bn. Total collection for the current financial year ending March 2000 is expectedto reach Rs450bn.What is particularly noteworthy is that bulk of the mobilization has been by the privatesector mutual funds rather than public sector mutual fundsMutual funds are now alsoMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 21
  22. 22. competing with commercial banks in the race for retail investor’s savingsand corporate float money. The power shift towards mutual funds has become obvious.The coming few years will show that the traditional saving avenues are losing out in thecurrent scenario. Many investors are realizing that investments in savings accounts areas good as locking up their deposits in a closet. The fund mobilization trend by mutualfunds in the current year indicates that money is going to mutual funds in a big way.India is at the first stage of a revolution that has already peaked in the U.S. The U.S.boasts of an Asset base that is much higher than its bank deposits. In India, mutual fundassets are not even 10% of the bank deposits, but this trend is beginning to change.Recent figures indicate that in the first quarter of the current fiscal year mutual fundassets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank,the Financial Express September, 99) This is forcing a large number of banks to adoptthe concept of narrow banking wherein the deposits are kept in Gilts and some otherassets which improves liquidity and reduces risk. The basic fact lies that banks cannotbe ignored and they will not close down completely. Their role as intermediaries cannotbe ignored. It is just that Mutual Funds are going to change the way banks do business inthe future.WHAT IS A MUTUAL FUND?A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. It offers an opportunity to invest in a diversified, professionallymanaged basket of securities at a relatively low cost. The flow chart below describesbroadly the working of a mutual fund: Pool their money with Investors Fund managersMRINAL MANISH (4108078078) Invest inINDIAN INSTITUTE OF FINANCE Page 22 Passed back to Returns Securities
  23. 23. “Mutual Funds are popular among all income levels. With a mutual fund, we get adiversified basket of stocks managed by professionals”These Trusts are run by experienced Investment Managers who use their knowledge andexpertise to select individual securities, which are classified to form portfolios that meetpredetermined objectives and criteria.These portfolios are then sold to the public. They offer the investors the following mainservices: Portfolio Diversification Marketability: A new financial asset is created that may be more easilymarketable than the underlying securities in the portfolio.Organization of a Mutual FundA mutual fund is set up in the form of a trust, which has sponsor, trustees,asset management company (AMC) and custodian. The trust is established by a sponsoror more than one sponsor who is like promoter of a company. The trustees of the mutualfund hold its property for the benefit of the unit holders. Asset Management Company(AMC) approved by SEBI manages the funds by making investments in various types ofsecurities. Custodian, who is registered with SEBI, holds the securities of variousschemes of the fund in its custody. The trustees are vested with the general power ofMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 23
  24. 24. superintendence and direction over AMC. They monitor the performanceand compliance of SEBI Regulations by the mutual fund.TYPES OF MUTUAL FUND SCHEMESMutual fund schemes may be classified on the basis of its structure and its investmentobjective.By Structure:Open-ended Funds:An open-end fund is one that is available for subscription all through the year. These donot have a fixed maturity. Investors can conveniently buy and sell units at Net AssetValue ("NAV") related prices. The key feature of open-end schemes is liquidity.Closed ended Funds:A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15years. The fund is open for subscription only during a specified period. Investors caninvest in the scheme at the time of the initial public issue and thereafter they can buy orMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 24
  25. 25. sell the units of the scheme on the stock exchanges where they are listed.In order to provide an exit route to the investors, some close-ended funds give an optionof selling back the units to the Mutual Fund through periodic repurchase at NAV relatedprices. SEBI Regulations stipulate that at least one of the two exit routes is provided tothe investor. .Interval Funds:Interval funds combine the features of open-ended and close-ended schemes. They areopen for sale or redemption during pre-determined intervals at NAV related pricesBy Investment ObjectiveGrowth Funds:The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a majority of their corpus in equities. It has beenproved that returns from stocks, have outperformed most other kind of investments heldover the long term. Growth schemes are ideal for investors having a long term outlookseeking growth over a period of time.Income Funds:The aim of income funds is to provide regular and steady income to investors. Suchschemes generally invest in fixed income securities such as bonds, corporate debenturesand Government securities. Income Funds are ideal for capital stability and regularincome.Balanced Fund:The aim of balanced funds is to provide both growth and regular income. Such schemesperiodically distribute a part of their earning and invest both in equities and fixedMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 25
  26. 26. income securities in the proportion indicated in their offer documents. In arising stock market, the NAV of these schemes may not normally keep pace, or fallequally when the market falls. These are ideal for investors looking for a combination ofincome and moderate growth.MoneyMarketFunds:The aim of money market funds is to provide easy liquidity, preservation of capital andmoderate income. These schemes generally invest in safer short-term instruments suchas treasury bills, certificates of deposit, commercial paper and inter-bank call money.Returns on these schemes may fluctuate depending upon the interest rates prevailing inthe market. These are ideal for Corporate and individual investors as a means to parktheir surplus funds for short periods.Other SchemesTax Saving Schemes:These schemes offer tax rebates to the investors under specific provisions of the IndianIncome Tax laws as the Government offers tax incentives for investment in specifiedavenues. Investments made in Equity Linked Savings Schemes (ELSS) and PensionSchemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act alsoprovides opportunities to investors to save capital gains u/s 54EA and 54EB byinvesting in Mutual Funds.Special Schemes • Industry Specific SchemesMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 26
  27. 27. Industry Specific Schemes invest only in the industries specified in theoffer document. The investment of these funds is limited to specific industries likeInfoTech, FMCG, and Pharmaceuticals etc. • Index SchemesIndex Funds attempt to replicate the performance of a particular index such as the BSESensex or the NSE 50 • Sectoral SchemesSectoral Funds are those which invest exclusively in a specified sector. This could be anindustry or a group of industries or various segments such as A Group shares or initialpublic offeringsBENEFITS OF MUTUAL FUNDS Diversification Professional management Tax benefitsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 27
  28. 28. Affordability TransparencyProfessional ManagementMutual Funds provide the services of experienced and skilled professionals, backed by adedicated investment research team that analyses the performance and prospects ofcompanies and selects suitable investments to achieve the objectives of the scheme.DiversificationMutual Funds invest in a number of companies across a broad cross – section ofindustries and sectors. This diversification reduces the risk because seldom do all stocksdecline at the same time and in the same proportion. You achieve this diversificationthrough a Mutual Fund with far less money than you can do on your own.AffordabilityA mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon theinvestment objective of the scheme. An investor can buy into a portfolio of equities,which would otherwise be extremely expensive.Tax BenefitsAny income distributed after March 31, 2002 will be subject to tax in the assessment ofall unit-holders. However, as a measure of concession to Unit holders of open – endedand equity – oriented funds, income distributions for the year ending March 31, 2003,will be taxed at a concessional rate of 10%.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 28
  29. 29. Return PotentialOver a medium to long – term, mutual funds have the potential to provide a higherreturn as they invest in a diversified basket of selected securities.Low CostsInvesting in the capital markets because the benefits of scale in brokerage, mutual fundsare a relatively less expensive way to invest compared to directly custodial and otherfees translate into lower costs for investors.LiquidityIn open – ended schemes, the investor gets the money back promptly at MAV relatedprices from the mutual fund. In closed – ended schemes, the units can be sold on a stockexchange at the prevailing market price or the investor can avail of the facility of directrepurchase at NAV related prices by the mutual fund.TransparencyYou get regular information on the value of your investment in addition to disclosure onthe specific investments made by your scheme, the proportion invested in each class ofassets and the fund manager’s investment strategy and outlook.FlexibilityThrough features such as regular investment plans, regular withdrawal plans anddividend reinvestment plans, you can systematically invest or withdraw funds accordingto your needs and convenience.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 29
  30. 30. Well RegulatedAll mutual funds are registered with SEBI and they function within the provisions ofstrict regulations designed to protect the interests of investors.Tax breaksLast but not the least, mutual funds offer significant tax advantages. Dividendsdistributed by them are tax-free in the hands of the investor.They also give you the advantages of capital gains taxation. If you hold units beyondone year, you get the benefits of indexation. Simply put, indexation benefits increaseyour purchase cost by a certain portion, depending upon the yearly cost-inflation index(which is calculated to account for rising inflation), thereby reducing the gap betweenyour actual purchase cost and selling price. This reduces your tax liability.What’s more, tax-saving schemes and pension schemes give you the added advantage ofbenefits under Section 88. You can avail of a 20 per cent tax exemption on aninvestment of up to Rs 10,000 in the scheme in a yearNo assured returns and no protection of capitalIf you are planning to go with a mutual fund, this must be your mantra: mutual funds donot offer assured returns and carry risk. For instance, unlike bank deposits, yourinvestment in a mutual fund can fall in value. In addition, mutual funds are not insuredor guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakhMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 30
  31. 31. per bank is insured by the Deposit and Credit Insurance Corporation, asubsidiary of the Reserve Bank of India).There are strict norms for any fund that assures returns and it is now compulsory forfunds to establish that they have resources to back such assurances. This is because mostclosed-end funds that assured returns in the early-nineties failed to stick to theirassurances made at the time of launch, resulting in losses to investors.Restrictive gainsDiversification helps, if risk minimization is your objective. However, the lack ofinvestment focus also means you gain less than if you had invested directly in a singlesecurity.In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in thestock would appreciate by 50 per cent. But your investment in the mutual fund, whichhad invested 10 per cent of its corpus in Reliance, will see only a 5 per centappreciation.RISK ASSOCIATED WITH MUTUAL FUNDS Credit Political inflation RISKS Liquidity MarketMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 31
  32. 32. Risk-Return Trade OffThe most important relationship to understand is the risk-return trade off. Higher the riskgreater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you,the investor to decide how much risk you are willing to take. In order to do this youmust first be aware of the different types of risks involved with your investmentdecision.Market RiskSometimes prices and yields of all securities rise and fall. Broad outside influencesaffecting the market lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP)that workson the concept of Rupee Cost Averaging (RCA) might help mitigate the risk.Credit RiskThe debt servicing ability of a company through its cash flows determines the CreditRisk faced by you. This credit risk is measured by independent rating agencies likeCRISIL who rate companies and their paper. A ‘AAA’ rating is considered the safestwhereas a ‘D’ rating is considered poor credit quality. A well – diversified portfoliomight help mitigate this risk.Inflation RiskMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 32
  33. 33. Inflation is the loss of purchasing power over a time. A lot of times people makeconservative investment decisions to protect their capital but end up with a sum ofmoney that can buy less than what the principal could, at the time of investment. Awell–diversified portfolio with some investment in equities might help mitigate this risk.Interest Rate RiskIn a free market economy interest rates are difficult and not impossible to predict.Changes in interest rates affect the prices of bonds as well as equities. If interest ratesrise, the prices of bonds will fall and vice versa. Equity might be negatively affected aswell in a rising interest rate environment. A well-diversified portfolio might helpmitigate this risk.Political RiskChanges in government policy and political decision can change the investmentenvironment. They can create a favourable environment for investment or vice versa.Liquidity RiskLiquidity risk arises when it becomes difficult to sell the securities that one haspurchased. It can be partly mitigated by diversification, staggering of maturities as wellas internal risk controls that lean towards purchase of liquid securities. It simply meansthat you must spread your investment across different securities (stocks, bonds, moneymarket instruments, real estate, fixed deposits etc.). This kind of a diversification mayadd to the stability of your returns, for example, during one period of time equitiesmight under perform but bonds and money market instruments might do well enough tooffset the effect of a slump in the equityMarkets.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 33
  34. 34. DISADVANTAGES OF MUTUAL FUNDSThere are certainly some benefits to mutual fund investing, but you should also be awareof the drawbacks associated with mutual funds. 1. No Insurance: Mutual funds, although regulated by the government, are not insured against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment. 2. Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the funds holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly. 3. Fees and Expenses: Most mutual funds charge management and operating fees that pay for the funds management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up significantly. Some of these expenses are charged on anMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 34
  35. 35. ongoing basis, unlike stock investments, for which a commission is paid only when you buy and sell . 4. Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor. 5. Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You also should remember that you are trusting someone else with your money when you invest in a mutual fund. 6. Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after theyve calculated the current value of their holdings. 7. Size: Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there are strict rules about how much of a single company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a result, the fund might be forced to lower its standards when selecting companies to invest in.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 35
  36. 36. 8. Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the funds money is invested in cash instead of assets, which tends to lower the investors potential return.Different Types: The advantages and disadvantages listed above apply to mutual fundsin general. However, there are over 10,000 mutual funds in operation, and these fundsvary greatly according to investment objective, size, strategy, and style. Mutual fundsare available for virtually every investment strategy (e.g. value, growth), every sector(e.g. biotech, internet), and every country or region of the world. So even the process ofselecting a fund can be tedious.Net Asset Value (NAV)Open-end mutual funds price their shares in terms of a NetAsset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but itwill not necessarily be the price at which you buy or sell closed-end shares). NAV iscalculated by adding up the market value of all the funds underlying securities,subtracting all of the funds liabilities, and then dividing by the number of outstandingshares in the fund. The resulting NAV per share is the price at which shares in the fundare bought and sold (plus or minus any sales fees). Mutual funds only calculate theirNAVs once per trading day, at the close of the trading session.HISTORY OF MUTUAL FUND IN INDIAHISTORY – The Landmarks1963: UTI is India’s first mutual fund.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 36
  37. 37. 1964: UTI launches US-64.1971: UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched.1986: UTI Master share, India’s first true ‘mutual fund’ scheme, launched.1987: PSU banks and insurers allowed floating mutual funds; State Bank of India (SBI)first off the blocks.1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in sharesand mutual funds.1993: Private sector and foreign players allowed; Kothari Pioneer first private fundhouse to start operations; SEBI set up to regulate industry.1994: Morgan Stanley is the first foreign player.1996: Sebi’s mutual fund rules and regulations, which forms the basis of most currentlaws, come into force.1998: UTI Master Index Fund is the country’s first index fund.1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisitionin the mutual fund industry.2000: The industry’s assets under management crosses Rs 1, 00,000 crore.2001: US-64 scam leads to UTI overhaul.2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned fromgiving commissions to investors; floating rate funds and Foreign debt funds debut.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 37
  38. 38. 2003: AMFI certification made compulsory for new agents; fund of funds launched.The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank. The history ofmutual funds in India can be broadly divided into four distinct phases.FIRST PHASE: 1964 – 87Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set upby the Reserve Bank of India and functioned under the regulatory and administrativecontrol of the Reserve Bank of India. In 1978, UTI was de-linked from the RBI and theIndustrial Development Bank of India (IDBI) took over the regulatory andadministrative control in place of RBI. The first scheme launched by UTI was UnitScheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under themanagement.SECOND PHASE: 1987 – 1993 (Entry of Public Sector Funds)1987 marked the entry of non – UTI, public sector mutual funds set up by public sectorbanks and Life Insurance Corporation of India (LIC) and General Insurance Corporationof India (GIC). SBI Mutual Fund was the first non – UTI Mutual Fund established inJune1987 followed by Can Bank Mutual Fund (Dec ‘87), Punjab National Bank MutualFund (Aug ‘89), Indian Bank Mutual Fund (Nov ‘89), Bank of India (Jun ‘90), Bank ofBaroda Mutual Fund (Oct ‘92). LIC established its mutual fund in June 1989 while GIChad set up its mutual fund in December 1990. At the end of 1993, the mutual fundindustry had assets under management of Rs.47, 004 crores.THIRD PHASE: 1993 – 2003 (Entry of Private Sector Funds)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 38
  39. 39. With the entry of private sector funds in 1993, a new era started in the Indian mutualfund industry, giving the Indian investors a wider choice of fund families. Also, 1993was the year in which the first Mutual Fund came into being, under which all mutualfunds, except UTI, were to be registered and governed. The erstwhile Kothari Pioneer(now merged with Franklin Templeton) was the first private sector mutual fundregistered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveand revised Mutual Fund Regulations in 1996.The industry now functions under the SEBI (Mutual Fund) Regulations 1996. Thenumber of mutual fund houses went on increasing, with many foreign mutual fundssetting up funds in India and also the industry has witnessed several mergers andacquisitions. As at the end of January 2003, there were 33 mutual funds with total assetsof Rs.1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets undermanagement was way ahead of other mutual funds.FOURTH PHASE: since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the Unit Trustof India with assets under management of Rs.29,835 crores as at the end of January2003, representing broadly, the assets of US 64 scheme, assured return and certain otherschemes. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB andLIC. It is registered with SEBI and functions under the Mutual Fund Regulations. Withthe bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000crores of assets under management and with the setting up of a UTI Mutual Fund,conforming to the SEBI MutualFund Regulations, and with recent mergers taking place among different private sectorfunds, the mutual fund industry has entered its current phase of consolidation andgrowthMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 39
  40. 40. INDUSTRY PROFILE:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 40
  41. 41. Growth of asset under management from March-1965 to March-2009STRUCTURE OF MUTUAL FUNDS IN INDIAMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 41
  42. 42. Like other countries, India has a legal framework within which mutual funds must beconstituted. In India, open and close – end funds operate under the same regulatorystructure, i.e. in India, all mutual funds are constituted along one unique structure – asunit trust. A mutual fund in India is allowed to issue open – end and close – endschemes under a common legal structure. The structure, which is required to befollowed by mutual funds in India, laid down under SEBI (Mutual Fund) Regulations,1996.The Fund Sponsor‘Sponsor’ is defined under SEBI Regulations as any person who, acting alone or incombination with another body corporate establishes a mutual fund. The sponsor of afund is akin to the promoter of companies he gets the fund registered with SEBI. TheMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 42
  43. 43. sponsor will form a Trust and appoint a Board of Trustees. All theseappointments are made in accordance with the SEBI Regulations. As per the existingSEBI Regulations, for a person to qualify as a sponsor, must contribute at least 40% ofthe net worth of the AMC and issues a sound financial track over five years prior toregistration.Mutual Funds as TrustsMutual Fund in India is constituted in the form of a Public Trust under the Indian TrustAct 1882. The fund invites investors to contribute their money in the common pool bysubscribing to units issued by various schemes established by the Trust as evidence oftheir beneficial interest in the fund. The Trust or Fund has no legal capacity itself ratherit is the Trustee(s) who have legal capacity and therefore the trustees take all acts inrelation to the Trust itself.TrusteesA Board of Trustees – a body of individuals, or a trust company – a corporate body, maymanage the Trust. Board of Trustees manages most of the funds in India. The Trust iscreated through a document called the Trust Deed that is executed by the Fund Sponsorin favors of the trustees. They are the primary guardian of the unit holder’s funds andassets. They ensure that AMC’s operations are along professional lines.Right of Trustees a) Appoint the AMC with the prior approval of SEBI b) Approve each of the schemes floated by the AMC c) Have the right to request any necessary information from the AMC concerning the operations of various schemes managed by the AMCObligations of the AMC and its DirectorsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 43
  44. 44. They must ensure that: a) Investment of funds is in accordance with SEBI Regulations and the Trust Deed b) Take responsibility for the act of its employees and others whose services it has procured c) Do not undertake any other activity conflicting with managing the fundAsset Management CompanyThe role of an Asset Management Company (AMC) is to act as the investment managerof the trust under the Board supervision.Transfer AgentsTransfer Agents are responsible for issuing and redeeming units of the mutual fund andprovide other related services such as preparation of transfer documents updatinginvestor’s records. A fund may choose to opt this activity in-house or by an outsidetransfer agent.DistributorsAMCs usually appoint distributors or brokers, who sell units on behalf of the fund.Some funds require that all transactions to be routed through such brokers.BankersA fund’s activities involved dealing with the money on a continuous basis primarilywith respect to buying and selling units, paying for investment made, receiving theproceeds from sale of investment and discharging its obligations towards operativeexpenses. A fund’s banker therefore plays a crucial role with respect to its financialdealings.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 44
  45. 45. Custodian and DepositoryThe custodian is appointed by the Board of Trustees for safekeeping of securities interms of physical delivery and eventual safe keeping or participating in the clearingsystem through approved depository companies.ASSOCIATION OF MUTUAL FUNDS IN INDIAWith the increase in mutual fund players in India, a need for mutual fund association inIndia was generated to function as a non profit organisation. Association of MutualFunds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is a apex body of all Asset Management Companies (AMC) which has beenregistered with SEBI. Till date all the AMCs are that have launched mutual fundschemes are its members. It functions under the supervision and guidelines of its Boardof Directors.Association of Mutual Funds India has brought down the Indian Mutual Fund Industryto a professional and healthy market with ethical lines enhancing and maintainingstandards. It follows the principle of both protecting and promoting the interests ofmutual funds as well as their unit holder.The objectives of Association of Mutual Funds in IndiaThe Association of Mutual Funds of India works with 30 registered AMCs of thecountry. It has certain defined objectives which juxtaposes the guidelines of its Board ofDirectors. The objectives are as follows:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 45
  46. 46.  This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund in India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programmed for investor’s in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodiesMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 46
  47. 47. COMPANY PROFILEABOUT THE ORGANIZATION:SBI Mutual Fund is India’s largest bank sponsored mutual fund. The fund traces itslineage to SBI - India’s largest banking enterprise. The institution has grown immenselysince its inception and today it is Indias largest bank, patronized by over 80% of the topcorporate houses of the country. SBI Mutual Fund is a joint venture between theState Bank of India and Société Générale Asset Management, one of the world’sleading fund management companies that manages over US$ 500 Billion worldwide. Intwenty years of operation, the fund has launched 38 schemes and successfully redeemedfifteen of them.A total of over 4.6 million investors have reposed their faith in the wealth generationexpertise of the Mutual Fund. The fund serves this vast family of investors by reachingout to them through network of over 130 points of acceptance, 28 investor servicecenters, 46 investor service desks and 56 district organizers. Today, the fund managesover Rs. 28500crores of assets and has a diverse profile of investors actively parkingtheir investments across 36 active schemes. SBI Mutual is the first bank-sponsored fundto launch an offshore fund – Resurgent India Opportunities Fund. Growth throughinnovation and stable investment policies is the SBI MF credo.GUIDING PRINCIPLES OF SBI MUTUAL FUND:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 47
  48. 48. ConsistencyValue oriented investment philosophy is designed to produce consistent results aimingto beatthe benchmark at all times.FlexibilityOffers investors a broad range of managed investment products in various asset classesand risk parameters, within the at most operational flexibility to suit their investmentneeds.StabilityOur commitment to the highest quality of service and integrity are the foundation uponwhich clients can build their trust with usOriginThe origin of the Indian mutual funds industry dates back to 1963 when the Unit Trustof India (UTI) came into existence at the initiative of the Government of India and theReserve Bank of India. Since then the mutual funds sector remained the sole fiefdom ofUTI till 1987 when a slew of non-UTI, public sector mutual funds were set up bynationalized banks and life insurance companies.The year 1993 saw sweeping changes being introduced in the mutual fund industry withprivate sector fund houses making their debut and the laying down of comprehensivemutual fund regulations. Over the years, the Indian mutual funds industry has witnessedMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 48
  49. 49. an exponential growth riding piggyback on a booming economy and thearrival of a horde of international fund houses.Concept“Mutual fund is vehicle that enables a number of investors to pool their money and have it jointly managed by a professional money manager.”A Mutual Fund is a pool of money, collected from investors, and is invested accordingto certain investment objectives.A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal.The money thus collected is then invested in capital market instruments such as shares,debentures and other securities.The income earned through these investments and the capital appreciation realised areshared by its unit holders in proportion to the number of units owned by them.Mutual Fund companies are known as asset management companies. They offer avariety of diversified schemes. Mutual Fund acts as investment companies. They poolthe savings of investors and invest them in a well-diversified portfolio of soundinvestments.Mutual funds can be broken down into two basic categories: equity and bond funds.Equity funds invest primarily in common stocks, while bond funds invest mainly invarious debt instruments.Within each of these sectors, investors have a myriad of choices to consider, including:international or domestic, active or indexed, and value or growth, just to name a few.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 49
  50. 50. I will cover these topics shortly. First, however, I am going to focus myattention on the “nuts and bolts” of how mutual funds operate. Mutual Fund Operation Flow ChartMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 50
  51. 51. MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 51
  52. 52. ORGANIZATIONOrganization of a Mutual FundMutual fundsMutual fund is vehicle that enables a number of investors to pool their money and haveit jointly managed by a professional money managerSponsorSponsor is the person who acting alone or in combination with another body corporateestablishes a mutual fund. The Sponsor is not responsible or liable for any loss orMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 52
  53. 53. shortfall resulting from the operation of the Schemes beyond the initialcontribution made by it towards setting up of the Mutual Fund.TrusteeTrustee is usually a company (corporate body) or a Board of Trustees (body ofindividuals). The main responsibility of the Trustee is to safeguard the interest of theunit holders and ensure that the AMC functions in the interest of investors and inaccordance with the Securities and Exchange Board of India (Mutual Funds)Regulations, 1996.Asset Management Company (AMC)The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund.At least 50% of the directors of the AMC are independent directors who are notassociated with the Sponsor in any manner. The AMC must have a net worth of at least10 crores at all times.Transfer AgentThe AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agentto the Mutual Fund. The Registrar processes the application form, redemption requestsand dispatches account statements to the unit holders. The Registrar and Transfer agentalso handles communications with investors and updates investor records.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 53
  54. 54. SBI Mutual Fund is India’s largest bank sponsored mutual fund andhas an enviable track record in judicious investments and consistent wealthcreation. The fund traces its lineage to SBI - India’s largest banking enterprise.The institution has grown immensely since its inception and today it is Indiaslargest bank, patronized by over 80% of the top corporate houses of the country.SBI Mutual Fund is a joint venture between the State Bank of India and SociétéGénérale Asset Management, one of the world’s leading fund managementcompanies that manages over US$ 330 Billion worldwide. At SBI Mutual Fund,resources are considerably devoted to gain, maintain and sustain profitableinsights into market movements. The trust reposed on SBI-MF by over 2 millioninvestors is a genuine tribute to its expertise in Fund Management. SBI MutualFund is India’s largest bank sponsored mutual fund and has an enviable trackrecord in judicious investments and consistent wealth creation.Thus SBI-MF believes in • Proven Skills in Wealth Generation • Exploiting expertise, compounding growthOPERATIONIn eighteen years of operation, the fund has launched thirty-two schemes andsuccessfully redeemed fifteen of them. In the process it has rewarded its investorshandsomely with consistently high returns. A total of over 20, 00,000 investors havereposed their faith in the wealth generation expertise of the Mutual Fund. Schemes ofthe Mutual fund have consistently outperformed benchmark indices and have emergedas the preferred investment for millions of investors and HNI’s. Today, the fundmanages over Rs. 13,000 crores of assets and has a diverse profile of investors activelyparking their investments across 28 active schemes. The fund serves this vast family ofinvestors by reaching out to them through network of 82 collection branches, 26 investorservice centers, 21 investor service desks and 21 district organizers.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 54
  55. 55. BOARD OF DIRECTORSMr. Achal K. Gupta Mr. C A SantoshManaging Director & Chief Chief Manager - Customer Service.Executive OfficeMr. Didier Turpin Ms. Aparna NirgudeDy. Chief Executive Officer Chief Risk OfficerMr. Ashwini Kumar Jain Mr. Ashutosh P VaidyaChief Operating Officer Company Secretary & Compliance OfficerMr. Navneet Munot Mr. Parijat AgrawalChief Investment Officer Head – Fixed IncomeMr. R. S. Srinivas JainChief Marketing OfficerMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 55
  56. 56. INVESTMENT TEAM Chief Investment Officer : SanjaySinha Mr. Sanjay Sinha has taken over as Chief Investment Officer with effect from June 1, 2007. Mr. Sinha joined SBI Mutual Fund as the Head of Equities in November 2005 and has managed the largest number of funds in SBI MF covering the entire spectrum of equity funds – from index funds, diversified equity funds to sector funds. He has over 18 years of experience in the Mutual Fund Industry. Prior to joining SBI MF, Mr. Sinha worked as Senior Fund Manager with UTI Mutual Fund and was managing a corpus of over Rs 28 billion (over US$600 million). A Post Graduate from IIM Kolkatta, Mr. Sanjay Sinha has a rich experience in managing funds. Vice President - Investment Department : ThierryNardozi Thierry graduated from University of Glamorgan with a BA (Hons) in Business studies. He started his career with Irish Life in Dublin before moving to Societe Generale Asset Management. Thierry has an experience of 14 years within the asset management industry and has been involved in fund management for 10 years. Prior to joining SBI Funds Management Pvt. Ltd. in October 2007, he was handling institutional and mutual funds invested in European equities. Thierry is also a post-graduate of SFAF (European Federation of Financial AnalystsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 56
  57. 57. Societies). Head Portfolio Management Services / Fund Manager : NipaLadiwala After obtaining a post graduate degree in Business Management and Law, Nipa worked as an equity analyst, and dealer for the offshore Funds of UTI. Subsequently she was appointed as Fund Manager for India Growth Fund, which was listed on NYSE. She was head of Research at UTI Securities before joining SBI Funds Management Pvt. Ltd. as Head of PMS. Nipa has 6 years experience as Fund Manager. She has a total of 15 years experience and has been with SBI Funds Management Pvt. Ltd since October 2005. Equity : Aashish Wakankar(Vice President & Fund Manager) Aashish Wakankar is a Bachelor of Science from University of Mumbai and holds Post Graduate Diploma in Management Studies from Jamnalal Bajaj Institute of Management Studies, University of Mumbai. He has more than 12 years of experience in capital markets ranging from institutional equities, equity research and fund management. He is associated with SBI Funds Management from December 2005. Prior to joining SBI Funds Management, he has worked with Kotak Mahindra Asset Management, Deutsche Asset Management - part of Deutsche Bank Group, and TATA TD Waterhouse Securities - a joint venture between the TATA Group, India and TD Bank Financial Group, Canada. At Deutsche Asset Management, he was responsible for advising the offshore fund Deutsche India Equity Fund, Japan and MetLife Insurance.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 57
  58. 58. Debt / Fixed Income: Parijat Agrawal (Head–Fixed Income) Parijat has done his B.E (ECE) and PGDM (IIM Bangalore). He has got 12 years experience in capital markets in areas like research, dealing and fund management. Parijat is associated with SBI Funds Management Pvt. Ltd. since July 2006. Prior to joining SBI Funds Management Pvt. Ltd., he was with State Bank of Mauritius Limited, Mumbai as Head – Treasury. Ganti N. Murthy (Asst.Vice President & Fund Manager) Mr. Murthy did his B.Sc (Hons) from Osmania University and his Masters in Financial Management from Jamnalal Bajaj Institute of Management Studies, Mumbai. He has over 12 years experience in the Mutual Fund Industry, 9 years in Unit Trust of India and 3 years in Cholamandalam AMC Ltd. Prior to joining SBI Funds Management Pvt. Ltd., he was with Cholamandalam Mutual Fund as Fund Manager – Debt. OffshoreFunds Anand Gupta Anand holds charter from CFA Institute, USA and Institute of Chartered Accountants of India. Before joining SBI Funds Management in October 2005, Anand has worked with HSBC securities and domestic brokerage house as equity research analyst for 3 years. Anand has 5 years of experience in capital markets and 3 years of experience in Audit & Business consulting.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 58
  59. 59. PRODUCT PORTFOLIOMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 59
  60. 60. Distribution channel in SBIMFSBI asset management company mainly emphasize on relationship building with itscustomers like distributors, Banks, individual investors etc. The distribution channel ofSBIMF is as followsOverview of Retail channelThe alternative distribution channels that are available are selling, or using leadmanagers and brokers along with sub-brokers, for selling units. To be successful in thismission, the industry will have to ensure that only those agents that have convictionabout mutual funds being the most versatile and an ideal investment vehicle forinvestors are encouraged. This is because, there is a sense of loyalty amongst agents, inMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 60
  61. 61. anticipation of getting continuous business throughout the year, and thetrust and credibility that has been generated or will be generated by being loyal to oneinstitution. Savings in advertisement and publicity expenses is also affected, as the targetof communication is restricted to a few groups of individuals, since the agent willfunction as a facilitator, informer and educator. The reduced cost benefit will ultimatelyaccrue to the investor in the form of higher returns.In such a system, one achieves brand loyalty through continuous interaction betweenagents and investors. Building a team of agents and other distribution network such asdistribution and collecting agents and franchise offices, will provide the investor theopportunity of having continuous interaction and contact with the mutual fund.Therefore, retail distribution through the agents is a preferred alternative for distributingmutual fund products.As my vertical in the company is retail which includes IFA’s (Individual financialadvisors) and National Distributors. The retail channel is subdivided into 5 regions. National Distributors Nitin Kumar West & Central Delhi Yogesh Kumar & Sumit East Delhi Suyash South Delhi Amit Srivastava North Delhi Abhishek Singh Meerut Ajay Chauhan Agra Jitin & Amir RazaMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 61
  62. 62. Relationship building with active and inactive distributors (IFAs)During my internship tenure of more than 8 weeks with SBIMF, the main task that hasbeen assigned to me was relationship building, for which I have personally visited bothactive and inactive distributors. AMC have around 2000 distributors in Delhi-NCRregion which is sub divided into 5 regions namely:- 1) North Delhi 2) South Delhi 3) East Delhi 4) West Delhi 5) Central DelhiI have covered some areas of East, West and Central Delhi. The purpose behind thesevisits was to build a relation with the distributors on the behalf of AMC which in turnhelp in generating more investment. In case of inactive distributors the motive was tofind out the reasons for which they stopped dealing with SBIMF. In this cumbersomeexercise of relationship building I made several observations from the feedback which Igot from the distributors and are highlighted below.NEW FUND OFFER (SBI GETS)SBI Mutual Fund had launched a New Fund Offer of the SBI Gold Exchange TradedScheme (SBI GETS). The scheme helped investors to invest in gold through theconvenience of their demat account.They could invest in as low as one gram of gold,since one unit of SBI GETS would track the price of even one gram of gold. Post-NFO,SBI GETS would be listed on the National Stock Exchange. The investors could be ableto easily trade the units of the scheme, just like an equity stock, through an NSE Brokeror their online trading account. The NFO of SBI GETS was open till 28th April, 2009.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 62
  63. 63. OTHER WORK EXPERIENCE AT SBI MUTUAL FUNDINFORMATION SHARING: • Apart from meeting the distributors the other way to keep in touch with them is to keep updating them about the latest information like NAVs, new products, best performing funds, initiatives like organizing Refresher Courses etc. All this information sharing is done by calling them personally.OPERATIONAL SERVICE: • All AMCs in India uses CAMS a software package to provide services to its customers.COMPUTER AGE MANAGEMENT SERVICES PVT. LTD. (CAMS) offers acomprehensive package of Transaction Processing and Customer Care services to theMutual Fund industry, and has been constantly raising the bar in customer service since1995. Setup in 1988 as a Software Developer, CAMS moved from Capital MarketTransaction Processing (processing Equity IPOs) to Customer Care and TransactionMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 63
  64. 64. Processing for Mutual Funds. CAMS today has the most appropriate andadvanced technology employed, with the best network for service delivery through itsnetwork of Service Centers in all major cities in India. At SBIMF we have learnt thesoftware and worked on it, the major things that we have done using this software are 1) Mailing statements to the clients/investors. 2) Finding out the AUM of distributors. 3) Verification of dividend payment. 4) Brokerage payments. • Recording and updating: After meeting the distributors I use to update their records in our database like changing of address, telephone no. etc.LEARNING’S DURING THE PROJECT:During this internship of three months, apart from project I have learnt several importantskills and gained knowledge which is very important, and according to me is the bestlearning during the Summer Internship Project, some of them are covered below:1) INTERPERSONAL SKILLS: While visiting the distributors with I have learnt the way of pitching a customer, how to represent the funds, how to handle various queries from them and several others.2) COMMUNICATION SKILLS: During this tenure of three months they have provided me various opportunities to improve my communications skills. It includes presentations on various topics like BUDGET’ 08-09, ADR & GDR etc. and group discussions.3) KNOWLEDGE ENHANCEMENT: With practices like NEWS submission on regular basis, assignments and daily sensex watch helped me to improve my knowledge regarding both stock market and economic development of the country.4) TEAM BUILDING:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 64
  65. 65. While working with retail team in SBIMF I have learnt the art of team building and working in a group, the way they work and move ahead as a team helps them in increasing the AUM of the company and achieving their targets.5) APPLICATION OF KNOWLEDGE: Another important skill that I have learnt during the project is application of knowledge to real life situations such as handling the investors who have knowledge about the industry, use of EXCEL to make SIP calculators and NAV trackers to attract the customers. 2.REVIEW OF LITERATURE June 2009 This was one of the best months for stocks and commodities in a long time. Sensex posted a gain of 28% as both foreign and domestic investors poured money. It is up a whopping 79% from the low witnessed on March 9 this year. The scale and speed of stock market gain has taken most investors by surprise and ‘left out feeling’ is leading to massive buying in high-beta names. Markets caught fireafter the announcement of election results and further fuel was added by positivenews flow from global markets.The barrage of liquidity is finally finding its way into riskier assets across markets.Credit spreads collapsed, high yield currencies gained against safe heavens and bondyields rose as investors migrate from defensives to risk-assets. Volatility and riskMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 65
  66. 66. premiums are touching multi-month low as confidence is coming back into financialmarkets. Incremental economic data is less negative, pile of cash is humongous andpolicy remains extremely supportive. As we have been writing that the scale,magnitude and synchronized nature of policy response this time is simplyunprecedented in history. Fundamental problems of global imbalances that led to thiscrisis can’t get resolved so easily and one might argue that the policy response so faris something like treating a ‘hangover’ with more alcohol. But the fact remains, thatin the short term, the sheer power of liquidity can take prices of risk assets to levelsfar beyond what fundamentals may justify.Commodity prices have also shot up with Reuters CRB index posting one of thebiggest monthly gain since 1974. Normally, commodities perform during the latestage of the bull market, however, investors seem to be playing a paper currencydebasement play through investment in real assets. While central bankers are stillmaintaining probably the most accommodative policy ever to combat deflation,market wisdom as reflected in prices seem to be getting worried about onset ofinflation.Indian equities were one of the best performing market this month as investorsjumped in after the decisive verdict in favor of UPA government. ForeignInstitutional Investors invested over $ 4 billion in the month of May and their year-to-date investment has also crossed $ 4 billion. Investors draw comfort from the factthat a major victory for UPA means greater ability to carry out critical reforms.Immediate priority for the government would be to provide adequate fiscal stimulusin order to cushion the economy against headwinds from the global downturn. Thefinance minister would have to balance between keeping the fiscal deficit undercontrol and providing more fiscal stimulus. The government must show a roadmap tobring down fiscal deficit over the medium term. Some of the long pending reformsrelated to FDI in sectors like insurance and retail, rationalization of subsidies,introduction of GST from 2010-11, continued thrust on agriculture and rural sectorand restarting disinvestment programme should be on the agenda. Apart from theMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 66
  67. 67. physical infrastructure, there should be equal focus on building the socialinfrastructure and higher outlays on education and healthcare which would go a longway in building a solid foundation for sustained economic growth. The other point wewould like to highlight is that the focus for the government this time should be onoutcome, not outlays; execution, not just big bang announcements.This election is a game changer. At a time when the global economy is faced withsevere challenges, the world is looking for new engines of economic growth. Indiawith its demographic advantage, high savings rate and a domestic consumption andinvestment oriented economy has the potential to de-couple from the rest of the worldand deliver higher growth rate on a sustained basis. At this time, we needed a pro-reforms and stable government which can push structural reforms to unleash the fullpotential of Indian economy and corporate sector. People of India have delivered thatdecisive mandate.Our sectoral bets and stock picks in equity funds are rightly positioned to takeadvantage of the upturn in equity market. We have been focussing on investing incompanies leveraged on domestic consumption and infrastructure build up. While onecan expect liquidity inflows from domestic and foreign investors, several corporatesare likely to use the opportunity to raise equity. We will continue to keep a closewatch on evolving economic scenario, policy announcements and valuation.Bond yields moved up on fears of higher government borrowing. Run up incommodity prices and increase in bond yields globally have also weighed on thesentiments. Interest rates are likely to be range-bound for some time and will offermore trading opportunities.Over the last several months, we have consistently been advising investors to focuson long term growth potential of Indian economy and take advantage of the downturnto build exposure to equities. The recent rally in equity markets further highlights theimportance of discipline in asset allocation in investor’s portfolios.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 67
  68. 68. Regards,Navneet MunotChief Investment OfficerSBI Funds Management Pvt. LtdABSTRACT (1)Investments goals vary from person to person. While somebody wants security, others mightgive more weightage to returns alone. Somebody else might want to plan for his childseducation while somebody might be saving for the proverbial rainy day or even life afterretirement. With objectives defying any range, it is obvious that the products required willvary as well.Indian Mutual Funds industry offers a plethora of schemes and serves broadly all types ofinvestors. The range of products includes equity funds, debt, liquid, gilt and balanced funds.There are also funds meant exclusively for young and old, small and large investors.Moreover, the setup of a legal structure, which has enough teeth to safeguard investors’interests, ensures that the investors are not cheated out of their hard earned money. All in all,benefits provided by them cut across the boundaries of investor category and thus create forMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 68
  69. 69. them, a universal appeal.Investors of all categories could choose to invest on their own in multiple options but opt forMutual Funds for the sole reason that all benefits come in a package. The Mutual Fundindustry is having its hands full to cater to various needs of the investors by coming up withnew plans, schemes and options with respect to rate of returns, dividend frequency andliquidity.In view of the growing competition in the Mutual Funds industry, it was felt necessary tounderstand the working of mutual funds industry in India, its merits and demerits, varioustypes of schemes available in the Indian market and the investor’s orientation towards MutualFunds i.e. their pattern of risk appetite and preferences in various schemes and plans. Apartfrom this the report also includes the details of the work that I have learnt during the project,which according to me is the best part of the project as it provided me a practical exposure tothe Mutual fund industry and the working of an AMC.ABSTRACT (2)Antonella Basso and Stefania Funari of Dipartimento di Matematica Applicata “B.de Finetti”, Università di Trieste, Piazzale Europa, 1, 34127 Trieste, Italy and Dipartimento diMatematica Applicata, Università Ca Foscari di Venezia, Dorsoduro 3825/E, 30123 Venezia,Italy respectively discussed in this paper about “A data envelopment analysis approach tomeasure the mutual fund performance.” In this paper they present a model which can beused to evaluate the performance of mutual funds. This model applies an operational researchmethodology, called data envelopment analysis (DEA), which allows to measure the relativeefficiency of decision making units. This approach allows to define mutual fund performanceindexes that can take into account several inputs and thus consider different risk measuresand, above all, the investment costs (subscription costs and redemption fees). Moreover, theDEA approach can naturally envisage other output indicators, in addition to the mean returnconsidered by the traditional indexes. Therefore, a generalized version of the DEA mutualMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 69

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